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The rule says that if you remove 4% of your savings your first year of retirement and then adjust future withdrawals to account for inflation, your nest egg should last for 30 years.
Determining the right withdrawal rate is a complex process that requires careful consideration of individual needs, market conditions, investment strategies and long-term goals.
Saving money for retirement is an important goal. But so is not running out of savings in retirement. To avoid this, personal finance and retirement experts have set a "retirement safe withdrawal ...
William P. Bengen is a retired financial adviser who first articulated the 4% withdrawal rate ("Four percent rule") as a rule of thumb for withdrawal rates from retirement savings; [1] it is eponymously known as the "Bengen rule". [2] The rule was later further popularized by the Trinity study (1998), based on the same data and similar analysis.
The 4% rule is based on a 90% probability that your money will be enough for your whole retirement. But if you're OK with more uncertainty, you might be able to withdraw 5% or 6% a year.
For example, if you want to withdraw $50,000 your first year of retirement, you’d need to save $1.25 million ($50,000 x 25) to follow the 4% rule. Why is the 4% rule outdated?